Kramer Company Makes 4,000 Units Per Year of a Part

question 5

Essay

Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of its products.Data concerning the unit production costs of the axial tap follow:
$\begin{array}{|l|r|}\hline \text { Direct Materials } & \$ 35 \\\hline \text { Direct Labour } & \$ 10 \\\hline \text { Variable Manufacturing Overhead } & \$ 8 \\\hline \text { Fixed Manufacturing Overhead } & \$ 20 \\\hline \text { Total Manufacturing Cost per Unit } & \$ 73 \\\hline\end{array}$
An outside supplier has offered to sell Kramer Company all of the axial taps it requires.If Kramer Company decided to discontinue making the axial taps,40% of the above fixed manufacturing overhead costs could be avoided.Assume that direct labour is a variable cost.
Required:
a)Assume Kramer Company has no alternative use for the facilities presently devoted to production of the axial taps.If the outside supplier offers to sell the axial taps for $65 each,should Kramer Company accept the offer? Fully support your answer with appropriate calculations.
b)Assume that Kramer Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually.What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

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Definitions:

Distribution

Describes how values are spread or distributed across various levels or intervals in a dataset.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the values in the set deviate from the mean.

Distribution

Describes the frequency or probability of all possible outcomes of a random variable.

Box Plots

Box plots, also known as box-and-whisker plots, are graphical representations used in descriptive statistics that show the distribution, central value, and variability of a dataset through quartiles, highlighting median, quartiles, and outliers in the data.